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Tuesday, May 05, 2009

As LIBOR spreads widen...

...Still many innings left to play in this game. I am watching as many measures of credit supply and demand as possible at the moment, and remain skeptical of the "slowing 2nd derivative" (things are getting bad at a slower rate) arguments that fail to see other possibilities.

May 4 (Bloomberg) -- Most U.S. banks expect loandelinquencies and losses to increase this year, a FederalReserve report showed today before this week’s release of stresstests of the nation’s 19 largest lenders.More than 70 percent of respondents on net said bad loanswill rise should the economy progress “in line with consensusforecasts,” the Fed said in a quarterly survey of banks’ seniorloan officers. More firms made it tougher for consumers to gethome and credit-card loans in the past three months than in theprevious survey, while fewer tightened terms for businesses.The report indicates that signs of stabilization in theU.S. economy aren’t resulting in an easing in lending terms.Banks are hoarding a record $1.1 trillion of cash even after theTreasury and central bank made emergency capital injections andset up special lending programs to ensure lenders extendedcredit to households and businesses.“The vast majority of domestic and foreign respondentsindicated that they expect deterioration in credit quality forall types of business and household loans,” today’s Fed reportsaid.